Retail

Retailers rue21, Dollar General both rise on first day of trade

KateGibson

MichelleDonley

NEW YORK (MarketWatch) -- As the year's still-tepid number of initial public offerings topped 2008's count, the market debuts of two value-focused retailers drew warm receptions Friday, as did commentary from other retailers, lifting hopes for the holiday shopping season.

"The retailers who've done successful IPOs all have had a bit of a recessionary angle," said Nick Einhorn, a research analyst at Renaissance Capital LLC, pointing to Dollar General Corp.
DG, -0.31%
rue21 Inc.
RUE, +1.11%
and the Vitamin Shoppe Inc.
VSI, -3.31%
which went public earlier in the month, as examples.

'The consumer discretionary sector is leading today, on a day when consumer confidence is out and well below expectations. Maybe when we get depressed we go shopping.'
Jeffrey Kleintop, LPL Financial

"Both these stories make sense if the consumer is tightening the belt these days," said Matt Therian, also a research analyst at Renaissance Capital.

The two public offerings bring the year-to-date count of IPOs to 51, compared with 50 IPOs in 2008 and 247 in 2007, according to Dealogic.

The market debuts of the retailers came amid a slew of quarterly earnings from retailers, including J.C. Penney Company Inc.
JCP, -0.56%
whose shares climbed 6.2% after the department store chain hiked both its profit and sales forecast.

"The consumer discretionary sector is leading today, on a day when consumer confidence is out and well below expectations. Maybe when we get depressed we go shopping," said Jeffrey Kleintop, chief market strategist, LPL Financial.

Consumer discretionary shares fronted the rally as U.S. stocks tallied a second week of gains. The Dow Jones Industrial Average
DJIA, -1.24%
added 73 points, or 0.7%, at 10,270.47, up 2.5% for the week. The S&P 500 Index
SPX, -1.54%
gained 6.24 points, or 0.6%, to 1,093.48, giving it a weekly gain of 2.3%, while the Nasdaq Composite Index
COMP, -1.94%
climbed 18.86 points, or 0.9%, to 2,167.88, up 2.6% from last Friday's close.

As for the most dormant IPO market, its count stands to rise next week, with a coal company, Chinese hotel operator, a medical records company, educational software developer and defense contractor among the half a dozen slated for next week, said Therian, who adds: "We're setting up very well for 2010."

As for Dollar General, which had been a public company before private-equity firm KKR bought it in 2007 for $7.2 billion, it opted to offer 34.1 million shares priced at $21 each, at the low end of its anticipated range of $21 to $23.

"It was on the expensive side relative to Wal-Mart
WMT, -1.58%
and Target
TGT, -0.34%
so they priced it at the low end and allowed it to get a first-day jump," said Einhorn of Dollar General.

"Some view pricing at the low end as a negative signal, but it's more just the environment we're in," said Einhorn.

The retailer, which is selling 22.7 million shares, while existing shareholders are selling 11.4 million shares, said it would receive net proceeds of about $445.2 million after commissions and expenses, money it will use to redeem part of its outstanding notes.

The Goodlettsville, Tenn.-based company is the largest discount retailer in the U.S. as measured by number of stores -- more than 8,700 in 35 states, according to a company press release. The company sells products usually priced at $10 or less, and it had $10.5 billion in total sales for the 12 months ended Jan. 30.

Taking a different tact, rue21 priced its offering of about 6.77 million shares at $19 each, above the expected range of $16 to $18. The company is offering 1.65 million shares, while existing shareholders will sell 5.12 million shares.

Rue21 said it expects to receive net proceeds of about $29.2 million, which it will use to repay part of its borrowings as well as for working capital and general corporate purposes.

The company, with 502 stores in 43 states, focuses on trendy apparel for teens at moderate prices.

After the IPO, private-equity firm Apax Partners will own nearly 58% of rue21's common stock.

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